of the week!!
I used to run coaching classes on contract-basis few years back, It was a moderate cash cow for but not my own venture as it didn’t bear my name though I was the one who was running it, recruiting teaching staff, paying them, etc. But class was owned by some other guy whom I used to give share of revenue.
In 2010, unfortunately I got less students, the amount of fees collected was less than I had to pay to my teaching staff. But I had a buffer of 6 months as I used to pay only after completion of syllabus.
(Now comes the mistakes that I did to doom my 1st venture)
1. Always take calculated risk not just based on vague assumptions & Never take out cash from cash starved business to fund another business
I had an idea of starting a food outlet in my mind since long, so I thought why not use this money to fund my idea and make profit and pay back my staff 6 months later.
But the money was not enough to start with, so I went on selling my idea to my friends for investment and finally convinced two friends Rohan and Sayali to invest 50k and 100k respectively. But all that they gave me at that point of time was promise to invest that amount, nothing was in my hand or on paper.
2. In food business location dictates what is to be served
I started searching for location and the criteria was there should be colleges around and low rentals, I found such a place but in Badlapur (20km from Kalyan). Badlapur was developing fast, many new constructions were coming up but market was yet to be developed. I got a place, Bharat college and Mahatre college in vicinity, so I thought it was an ideal location as more than 3000 students were studying in these colleges.
Next I started searching for a chef, I used to stand outside hotels and approach their cooks and tell them that I have a vacancy. Finally with this practice I met Ganesh Patil who was going to be my chef for next 14 months. He was then serving as Head Chef in Smokin Joe’s and had an experience of 10 yrs. Now he was a pizza expert and no one served pizza in Badlapur, so it was an ideal choice for me. I immediately started working on that direction of starting a pizza outlet but didn’t think for a second ‘Why there weren’t any pizza outlets in Badlapur?’ It often happens that we want to capture a virgin market and when we get such a place we want ourselves to believe that it’s a virgin market just because no one thought of that idea.
Actually, people in Badlapur are conservative when it comes to spending and with limited exposure. Many a times my customers used to ask me how to eat pizza? So pizza was not an ideal choice.
Ideal choice would have been to start with something which start at Rs. 10. Even Vada-Pav with some USP would have worked. So when you find a market with no competition don’t rejoice – first probe why there are no competitors. And for food business, location always dictates what is to be served.
3. First get all the money on table from paper then start spending.
Rohan as per promise gave me 50k but Sayali had some HUF problems, so she told me start using the money I had with me and she would pay me few weeks later. I believed her and spent all the money in procuring equipment, raw materials, rent, deposit, etc. Sayali kept on postponing but I somehow managed to match all the expenditure and the amount I had with me and launched ‘Chaska Pizza Outlet’ but I had literally zero balance in my account the day I started. I had no money even to pay the expenditure for a month on the first day. Later, of course Sayali didn’t invest single penny and I was partly doomed, as I had no contingency fund, fund for marketing, etc.
4. If you don’t have deep pockets then start small
I had picture of Pizza Hut and Dominos while starting my pizza outlet but didn’t have deep pockets like them which I ignored. I went on to recruit 4 people, giving them good salaries so that they won’t leave, then I rented a 1000 sq.ft space instead of a kiosk which added the burden of high rentals. I went on to procure equipment with more capacities than I’d require initially, anticipating the whole Badlapur would be waiting outside my outlet for pizzas. I procured more no. of chairs and tables than required hoping all 3000 students of nearby colleges spending their free time at my outlet spending extravagantly.
5. Only take inputs from experienced people but while executing use your own brain
As my chef had 10 years of experience I’d often take inputs from him and used to end up taking orders from him. He told him he would need 300 sq.ft space just for kitchen, so I had to rent a big space 1000 sq.ft.
He told me he would need an assistant who must have good experience in hotel industry while truth is even a fresher would have done that job, so I ended up hiring his friend.
He gave me list of equipment he’d need and without trying to find alternative I bought them.
He gave me a list of distributors to procure raw materials from, and I ended up procuring best of the raw materials available in the market, just imagine distributor of Dominos and mine were same.
I tried to convince him to lower down the quality a bit according to the crowd and we will be able to lower down our prices too because people in Badlapur were more concerned about quantity and money spent than quality. Many a times customer would suggest lower down the price we don’t mind you lowering the quality a bit. No matter how much I’d tell my chef to lower down quality, he always did the same. I wish I’d have used my brains very 1st day.
6. Keep operating cost as low as possible
As my chef was highly experienced, I was paying him Rs.10000, which is equivalent to what good pizza brands pay, I was paying his assistant Rs.6000, and I also had two delivery boys.
No one used to bring tiffin, chef used to cook lunch for everyone there itself using a commercial cylinder which was costing me Rs.1200, and I had to bear the cost of all the food that was cooked and everyone partied.
Due to these things our operating cost went as high as 50k per month and remember I said I didn’t had a penny on day 1. So the total sale of Pizzas in 1st month was 45k, lower than operating cost. so I made a good loss in 1st month itself.
10 months later I brought down operating cost drastically to 15k per month, that was a good trick how I did that.
But the point here is, what if I’d have adopted this strategy in 1st month itself having a operating cost of just 15k in 1st month. Sales was 45k in 1st month, so I could have made profit in the 1st month itself and invested the surplus amount in marketing and would have entered a different phase.
So it was a great mistake of having a high operating cost which absorbed all my money, so I couldn’t do marketing, no marketing so no awareness in public, no sales, so we entered into vicious circle.
Finally 14 months later I had to close down my venture and when I look back it was only and only my mistakes, though I gained lot of experience, turned mature from being amateur.
Of course I couldn’t pay my teaching staff too, so I had to take more loan to pay them. But then this incident taught me how to take charge, what are the details to be taken care of, how to manage finance, how to deal with customer and how to have realistic assumptions.